California nabs big share of $25 billion mortgage settlement

The federal government and attorneys general from 49 states including California are announcing today a settlement valued at $25 billion to $26 billion over three years with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.

California’s share of the settlement is $12 billion or close to half, according to Attorney General Kamala Harris’ office. That’s because California has the hardest hit housing market, according to a spokeswoman for Harris.

U.S. Housing and Urban Development Secretary Shaun Donovan said California’s “substantial share of the benefit” is based on its “enormous share of the delinquent and underwater loans nationally.” He said that benefits were divided up according to a formula “based on empirical evidence, not a random formula in any way.”

Homeowners who have already been foreclosed on or who are underwater on their mortgages are potentially eligible for a variety of benefits including refinancing, principal reduction and payments estimated at $1,500 to $2,000 each.

The eligibility rules are complex and vary for each form of relief. In general, to participate your loan must be owned by Bank of America, JPMorgan Chase & Co., Wells Fargo, Citigroup or Ally Financial Inc.

If your loan is serviced by one of those banks but owned by Fannie Mae or Freddie Mac, you are ineligible for any benefits with the possible exception of “blight” assistance, which goes to blighted neighborhoods, a spokeswoman for Harris says.

Homeowners should contact their servicer to see if they are eligible.

The settlement provides nothing to renters nor to homeowners who are current on their payments and owe less than their homes are worth, but have nevertheless seen the value of their homes plummet as a result of the housing crisis.

California’s share of the $25 billion to $26 billion is approximately $12 billion, according to a spokesman for Harris. In a press release, Harris says California’s share is $18 billion. What accounts for the difference?

A spokesman for Harris explains that to get $1 worth of credit toward the $26 billion settlement, a bank in some cases will have to write down a mortgage balance by more than $1. He adds that the value of the settlement to homeowners is more like $40 billion. California’s share of that $40 billion is $18 billion, he says.

A Department of Justice press release likewise explains, “Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.”

After California’s $18 billion in benefits, the states getting the most are Florida ($8.5 billion), Arizona ($1.6 billion), Nevada (1.5 billion) and Illinois ($1.2 billion).

Here’s how California’s share of the settlement breaks down, according to the press release:

— More than $12 billion is guaranteed to reduce the principal on loans or offer short sales to approximately 250,000 California homeowners who are underwater on their loans and behind or almost behind in their payments.
— $849 million will go toward refinancing the loans of 28,000 homeowners who are current on their payments but underwater on their loans.
— $279 million will be dedicated to offering restitution to approximately 140,000 California homeowners who were foreclosed upon between 2008 and December 31, 2011.
— $1.1 billion is estimated to be distributed to homeowners for unemployed payment forbearance and transition assistance as well as to communities to repair the blight and devastation left by waves of foreclosures, targeted at 16,000 recent foreclosures.
— $3.5 billion will be dedicated to relieving 32,000 homeowners of unpaid balances remaining when their homes are foreclosed.
— $430 million in costs, fees and penalty payments.

And here is how much Harris estimates homeowners in six counties will receive over three years: